In the aftermath of Hurricane Katrina, the third most intense hurricane to hit the continental United States, government purchase cards gained notoriety for weak internal controls that could result in improper and wasteful purchases, as well as missing or stolen assets.1 As a result, the Department of Justice (DOJ) Office of the Inspector General (OIG), in coordination with the President’s Council on Integrity and Efficiency (PCIE), completed an audit of DOJ’s purchase card expenditures related to hurricane relief and recovery efforts.2

Our audit reviewed whether DOJ components: (1) employed effective internal controls over hurricane relief purchase card transactions to ensure that problems are minimized, (2) authorized and validated hurricane-related purchase card transactions, and (3) received the hurricane-related goods and services that were purchased.3 The following DOJ components reported having hurricane-related purchase card transactions and were therefore included as part of this audit:

United States Marshals Service (USMS)

Federal Bureau of Prisons (BOP)

Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)

Federal Bureau of Investigation (FBI)

Drug Enforcement Administration (DEA)

Executive Office for United States Attorneys (EOUSA)

Community Relations Service (CRS)

Office of Justice Programs (OJP)

We identified critical control points in the purchase card process and developed tests to determine if proper internal controls were implemented to minimize misuse. We also conducted tests to determine whether transactions were authorized and valid, and if the purchased goods or services were received.

The Justice Management Division (JMD) is responsible for the operation of the purchase card program for the DOJís Offices, Boards, and Divisions (OBDs).4 Each DOJ component that is not considered an OBD, such as the FBI, DEA, and USMS, manage their own purchase card programs. Within each DOJ component, certain individuals are assigned the following purchase card responsibilities:

Purchase Card Coordinators implement internal controls to ensure compliance with federal laws and agency regulations, and monitor program effectiveness. Their responsibilities include overseeing the establishment and maintenance of a master file of official cardholder records, training, appointment, single and monthly purchase limits, and related records. Coordinators also ensure cardholder statements and supporting documents are reviewed and utilized to monitor delinquency, misuse, and other transaction activities.

Approving Officials (AO) ensure that internal controls are implemented for the purchase card program within offices where the cards are issued. To verify compliance with DOJ and component policies and procedures, all purchase card transactions are subject to mandatory monthly reviews conducted by AOs. The scope of monthly reviews includes purchase card expenditure limits, suitability of items purchased, and selection of reliable vendors. AOs must also take a refresher training course at a minimum of once every 3 years.

Cardholders are the day-to-day users of the purchase card, with the responsibility for using it in accordance with DOJ and component policies and procedures. A cardholder’s purchase card responsibilities include: (1) limiting purchases to authorized thresholds, (2) purchasing only appropriate and approved items, (3) maintaining a purchase log, (4) maintaining supporting documents for purchases, and (5) taking refresher training at a minimum of once every 3 years.

The following table provides a summary of relevant statistics concerning the DOJ’s purchase card program.

The DOJ’s Purchase Card Program

Number of Active Accounts

11,032

Percentage of DOJ employees that are cardholders

15%

Ratio of purchase cardholders to Approving Officials

4:1

Average number of purchase card transactions reviewed per Approving Official

59

Source: JMD reported to the Office of Management and Budget (OMB) January 31, 2006

Purchase card authority is based on the delegated procurement authority of the cardholder. Most cardholders are limited to the micro purchase threshold of $2,500 per transaction. However, cardholders with contracting officer-delegated authority may use purchase cards for acquisitions that exceed the micro purchase threshold up to their per transaction limit. In response to hurricane relief and recovery efforts, on September 8, 2005, DOJ authorized the use of emergency purchase card procedures to increase procurement dollar thresholds as shown in the following table:

The September 8, 2005, guidance further provided the following direction:

The increased threshold delegations should be selectively provided as needed,

Procurements using the increased authority must have a clear and direct relationship to the support of the hurricane relief and recovery efforts, and

The increased threshold authority expired 120 days after the September 8, 2005, guidance.6

Although each component had the authority to increase thresholds as a result of hurricane relief and recovery efforts, CRS and OJP did not raise thresholds or make other changes to their purchase card processes. The following chart details changes each component made to its purchase card procedures:

Purchase Request (approval) form not always completed prior to purchase.

X

Headquarters obligated funds rather than field offices.

X

Source: OIG interviews of component personnel.

Extra procedures were generally implemented to provide greater oversight of transactions related to the hurricane relief and recovery effort (e.g., centralized hurricane recovery purchases, funds approved at a higher authority, headquarters obligating funds). However, DEA also enacted procedures to speed the relief efforts, such as issuing emergency cards without training.

Footnotes

Internal controls are broadly defined as the policies and procedures established to provide reasonable assurance regarding the effectiveness and efficiency of operations, reliability of financial reporting, and compliance with applicable laws and regulations.

We conducted our audit as part of the PCIE’s examination of federal relief efforts affected by Hurricanes Katrina, Rita, and Wilma. As such, a copy of this report will be forwarded to the PCIE Homeland Security Working Group.

See Appendix I for more information on our objectives, scope, and methodology.

The OBDs are comprised of 35 enforcement, litigating, and policy-making components of the DOJ with a variety of missions and programs. EOUSA and CRS are also part of the OBDs.

The Federal Acquisition Regulation (FAR) is the primary criteria for use by all Federal Executive Agencies in their acquisition of supplies and services with appropriated funds. A micro purchase is the acquisition of supplies or services, the aggregate amount of which does not exceed $2,500, except as they pertain to construction contracts subject to the Davis-Bacon Act or contingency operations. A simplified acquisition refers to the methods described in FAR part 13 for purchases of supplies or services with an anticipated dollar value exceeding $2,500 but not exceeding $100,000. According to the FAR, agencies shall use simplified acquisition procedures to the maximum extent practicable for all purchases of supplies or services not exceeding the simplified acquisition threshold (including purchases at or below the micro purchase threshold). A commercial item refers to items, other than real property, that is customarily used by the general public.

On October 3, 2005, OMB issued further guidance to Executive Departments and Agencies. The guidance stated that OMB concluded that the need for the increased micro purchase threshold had diminished. Therefore, OMB requested that agencies not utilize the increased micro purchase threshold unless there were exceptional circumstances.

For hurricane-related transactions, the FBI and ATF ratio of cardholders to AO (span of control) was less than 4:1. As discussed later in this report, we observed that the overall span of control in the FBI and ATF far exceeded 4:1.